Incredible resilience

Charts: The S&P 500 closed at 979, up .3%. XLF (financial index) closed at 12.42, down .56%. A small gain after massive gains is bullish for the broad index and shows incredible resilience in the face of fundamental weakness. Resistance is at 1010. XLF is our long term indicator and it is still bullish. CIT Group was up today but suffered a bearish late day fade; this single stock is the canary in the coal mine for the whole US economy. Most chartists are more bullish than I am. They point to the 50-day moving average crossing the 200-day line a while back and get very excited. This pattern is called a “golden cross” and typically signifies long-lasting gains.

Fundamentals: Consumer confidence came in today weaker than expected. Consumer spending is 72% of the economy and if it continues to be weak the recovery will have to ride entirely on the back of China as well the other emerging markets and America’s exports to these tigers. The greatest forecaster of our age is economics professor Nouriel Roubini. He said recently, “The over-indebted US consumer—whose deleveraging process has yet to start—will likely continue to put the brakes on consumption, while the savings rate creeps up.” Professor Roubini predicts unemployment will peak at 11%. So there you have it, everything depends on China. This speaks to buying stocks levered almost entirely to emerging markets, like Phillips Morris International (PM).
The Senate majority leader says healthcare reform will not come to a vote before the August recess. This means the Blue Dogs can tear it apart during Congress’s vacation; super good news and a major reason for the market’s resilience.

Geopolitics: The CIA proudly announced that one of their flying robots killed Osama Bin Laden’s son, who was a high ranking bad guy, the liaison between Al-Qaeda and Iran, and perhaps the heir to the throne. Despite short term battlefield victories like this, the primary purpose of the drones is not simply to kill bad guys. The true purpose is to force America’s Muslim national allies to aggressively kill bad guys on their own. Allies like Pakistan and Afghanistan fear the Taliban but they also fear an American overlord with a permanent military presence within their countries. They know that America is very sensitive to the death of its own soldiers but relatively indifferent to the death of foreigners. Americans are only concerned about goodwill in countries that they routinely vacation in. This is why drones are so threatening to our third world allies. Drones allow us to fight wars without any of our soldiers dying. Therefore it behooves our allies to kill all the bad guys inside their borders and avoid becoming vassals to the superpower. This strategy is working and is another source of bullishness.